Solo 401(k) Plan $50,000 loan feature helping home buyers finance their new home.
IRA Financial Group, the leading provider of solo 401(k) plans for self-employed and small business owners, has seen a growing number of first time home buyers using the Solo 401K Plan loan feature as a means of helping buy a home in light of the difficult credit market for first time home buyers. “First-time home buyers are increasingly looking to use the solo 401(k) plan loan feature as a way of securing financing for the purchase of a new home in light of the tight credit market, “ stated Susan Glass, a tax specialist with the IRA Financial Group.
Internal Revenue Code Section 72(p) allows a Solo 401K Plan participant to take a loan from his or her 401K Plan so as long as it is permitted pursuant to the business’s 401K Plan documents.
A solo 401k loan is permitted at any time using the accumulated balance of the solo 401k as collateral for the loan. A Solo 401(k) participant can borrow up to either $50,000 or 50% of their account value – whichever is less. This loan has to be repaid over an amortization schedule of 5 years or less with payment frequency no less than quarterly. The lowest interest rate that can be used is Prime as per the Wall Street Journal, which is currently 3.25%.
An exception to the five-year payback rule exists for loans used to purchase a principal residence of the plan participant. If a participant wants to repay the loan over a period of greater than five years, the plan administrator should seek some proof from the participant that the loan is to be used to purchase the plan participant’s principal residence. The plan administrator, in general, may set the maximum term as long as it is reasonable when compared to the average terms for other residential loans local financial institution, which is typically either 15 or 30 years.
With IRA Financial Group’s Solo 401K plan loan feature, a plan participant can borrow up to $50,000 tax-free and penalty free and use the funds to purchase a primary residence and have the opportunity to pay back the loan over 15 years. There are no penalties or taxes due provided loan payments are paid on time. “The Solo 401(k) loan has proved to be an attractive financing option for home buyers looking to secure financing for the purchase of a primary residence and are having difficulty navigating the traditional mortgage market,“ states Ms. Glass.
As a result of the recent economic meltdown, banks and other financial institutions have significantly limited their lending capacity to first time home buyers. IRA Financial Group’s Solo 401k Plan is a perfect structure for any self employed business owner with retirement funds looking to financing options to purchase a primary residence.
The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.
IRA Financial Group is the leading provider of Solo 401(k) Plan solutions. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate and private business investments without custodian consent.